All Forum Posts by: Kevin Romines

@Jeremy Dugal I too, have written many policies this way. Of course I got the blessing both of my underwriters and claims department. If an LLC is listed as an additional insured, then they will be protected and defended just as the primary insured would be.

My company limits you to 20 personal lines polices and same with our umbrellas. However we also own Foremost and they will also write an LLC directly on a personal lines policy, best of all, there is no limits on the numbers of policies with them.

Depending on your availability and thoughts, you might consider a property that needs to be rehabbed to get screaming deal? You can then manage the contractors that perform the work, when done, refinance into a Fannie / Freddie 30 year fixed no MI, and cash flow all the way to the bank and then some? BRRRR. Its a great strategy and can put you in a very good position on the property when done correctly and often.

As an ex-lender, I can advise you that lenders have ways of checking to see if your owner occupied? That said, most lenders don't, but get caught saying a property is owner occupied when its not and the most severe punishment is prosecution for loan fraud.

I understand your being anxious to do something as a vacation rental, but I would just ride out the 1 year as owner occupied and then from there, you wont have any issues. Heck, rinse repeat and do it all over again. Max out the number of properties most lenders will allow you to finance then tie the knot. You will have one huge leg up on your investments going into the marriage at that point. It's a thought?

Kudo's for thinking outside the box.......just don't cross lines that will make you regret things later?

I was an agent for Country Financial. They require you to have both your primary and rentals with them. I left Country and moved to Farmers. Farmers has no issues just insuring your rentals, or even just some of your properties.

It just a matter of each companies internal rules, and no its not really more expensive, however the umbrella will have a surcharge on it due to different carriers?

It sounds like your going from strictly owner occupied to an owner occupied 2 unit, or what we call a granny unit? If that is correct, I would start with a conversation with your agent letting them know what your plans are? This may or may not change your insurance policy and it will have the same affect on your umbrella? All in all, minor changes.

I would also strongly consider requiring the renter to have a renters policy and you should be listed as an additional insured and a certificate holder on that policy. If your an additional insured, then the policy protects you as it does them from liability. It also covers any legal defense cost, so that saves you as well. As a certificate holder, you will be notified if in anyway that policy terminates, lapses or cancels?

Do some research on dealer status with the IRS and factor that into your decisions. It can make a huge taxation difference.

I'm not sure if it has been mentioned here, but one major reason to consider setting up an entity even for one property, is to avoid a dealers status by the IRS down the road. If you have passive income through rentals, or lease options / contracts and you also flip some properties, the IRS could come along and classify all your real estate dealings as dealer status.

This will then cause you to be taxed as ordinary income. You may also have to pay self employment income tax and you will lose the ability to deduct depreciation and do 1031 exchanges. This can also be done retroactively by the IRS. All bad things to have happen to you?

The best way to avoid this is to set up separate entities that only hold properties of like kind transactions. Passive in one entity, flipping in another.

I know it may be hard to look down the road and determine what your future plans are, but best to error on the side of caution and set up the entity just incase you decide to use different strategies later on?

I was thinking about the age old question that has been beat up a million times on BP or more, of do you put your properties in an entity or hold them in your personal name?

The thought hit me that the IRS has distinctions between being a dealer and not being a dealer. I don't know all the triggers, but the basics are how long you plan to hold the property and what your intent (rent or sell, even rent for a short period of time then sell)  are just some of the triggers. I have even heard of a complete entity being reclassified by the IRS as a dealer and therefore having to pay different taxes at higher levels.

I bring this up here because it's conceivable that if a person held both flipping properties and long term rentals in a sole proprietor or in their personal name, because they were co-mingling property types, the IRS could then re-classify all your properties as dealer status and retroactively tax you at higher and different rates?

If this holds to be true, then I would suggest that all investors hold their properties in separate entities based on what the intent with that property is?

As for the original question asked, I have owned an S-Corp for a couple of my businesses and have switched my newer business to an LLC. The LLC offers close to the same protection with less costs and less annual report requirements. The S-Corp has some ways to pay dividends that an LLC doesn't. I would follow the quality advice of a CPA and attorney that specializes in these areas.

As a Farmers agent that has a passion for real estate investment, I can say it makes a difference if your agent also specializes in the field that you need to get insurance in? For instance, because its my passion and its the specific people I like to work with, I happen to have some knowledge that virtually most other agents within my own company don't have. That's only because I have spent hours pouring through the questions my customers would have and asked my underwriting and claims staff so I could verify what can actually be done. That's the kind of knowledge and dedication to your industry that you need to find.

I would start by asking others in your market that handle volumes of rentals who they work with and why, who are the experts are and what makes them so knowledgeable. If you keep looking, you will find your person. Then leverage the knowledge that person brings to the table. It's all about building a quality team to your benefit.

I have compiled a small list of the issues most landlords seem to run into, if you can interview agents and ask about these things and get solid answers that work for you, then you may have found your agent.

- NO LIMITS ON NUMBERS OF INSURED PROPERTIES

- INSURE PROPERTIES HELD IN AN ENTITY (LLC / INC) ON PERSONAL LINES

- LOCAL AGENT – PASSIONATE ABOUT REAL ESTATE

- REPLACEMENT COST OR ACTUAL CASH VALUE

- FLIPPING? PROPERTIES THAT NEED TO BE REHABBED – NO PROBLEM

- BUNDLING POLICIES FOR DEEPER DISCOUNTS

- FLIPPING - $250.00 MIN. EARNED PREMIUM

- PROPERTIES WITH UP TO 5 PHYSICAL DAMAGE LOSSES IN LAST 5 YEARS

- CUSTOMERS WITH 1 LIABILITY LOSS IN THE LAST 3 YEARS

- UMBRELLA POLICIES - TRAMPOLINES AND POOLS ARE THEY ALLOWED?

- FIRE RATING AS HIGH AS A 9 OR 10 – RURAL AREAS

- NO DOG BREED RESTRICTIONS - PETS THAT HAVE CAUSED HARM – EXCLUSION

- PREVIOUS LAPSES – NO PROBLEM

- AGREED LOSS SETTLEMENT OPTIONS - PROPERTY VALUES AS LOW AS $5000

- NO MINIMUM SQ. FT.

- VERY COMPETITIVE COMMERCIAL POLICIES

- BUILDERS RISK POLICIES

- VACANT PROGRAM – UP TO 5 YEARS VANCANT, NO PROBLEM

My guess by your comments are that when the original policy was set up, it was deemed a personal lines owner occupied policy. Now that you are moving out, your insurance company maybe thinking of it as a commercial landlord policy? you might ask them if that's the case and if so ask them if they can re-quote it as a personal lines landlord policy?

Some insurance companies don't want to insure properties owned by an entity (LLC, INC) as a personal lines policy. Some will do it no problem? My company will, but check around, there really shouldn't be that big of a difference in the pricing to go from owner occupied to a landlord policy. If there is that big a difference, then it sounds like the agent isn't familiar with how to structure it or that particular company may not be the best one to work with for your rental properties. Find an agent that specializes in them. Talk to lenders and property managers, they know who the best agents for that type of business are?